Demand Drives Chinese Hog Expansion

Pork is the meat of cultural choice for Han Chinese, regularly accounting for 70% or more of meat products consumed. Annual per-capita consumption of pork is approximately 84 lb.

In mainland China, about 85% of the pork is eaten as freshly slaughtered and butchered cuts, consumed amongst a wide range of pig meat and offal recipes.

The exact numbers of pigs raised in China is not known, but it is easily the world’s largest hog market. Food and Agriculture Organization (FAO) of the United Nations and local estimates vary between 490 and 618 million pigs raised in mainland China in 2010.

Since 2005, pork production has been impacted by significant virus disease outbreaks, natural disasters (earthquakes, harsh winters) and cyclically unprofitable periods caused by oversupply and labor movements. During this time, demand for pork has increased at a rate of approximately 7% per year, due to population increases and urbanization.

[3]

The growing demand has led to concerns about the availability of pork amid general issues about food security for such a large human population.

To help meet the need, pork imports have increased; however, the Chinese government and the private sector have launched major initiatives to increase the supply of pork available to the country’s consumers.

Government Supports

The Chinese government operates numerous breeder farms arranged in a wide network of federal, provincial and county/local government programs. For example, the Shinxin pig breeding farms in the Beijing province operate five, 1,400- to 2,100-sow farms providing sows to farms throughout China.

The county/local-level farms generally range from 500 to 1,000 sows and are responsible for supplying breeding stock to small, individual farm units. Many of the small-scale farmers have exited the industry in lieu of higher wages in larger cities and construction sectors.

Because the government sector largely supplies the smaller pig farms, its size has remained fairly static in recent years. However, there has been considerable general support of hog farming in the past few years. Taxation rates for Chinese pig farmers are kept low, with extra stabilization measures such as subsidies for sow purchases and reimbursement for pig deaths.

Private Sector Growth

The private or semi-private pig farm sectors have seen massive growth in the past five years, driven by significant support from government and private investments.

This trend has become particularly noticeable this year, growing from a few investment opportunities in major pig farms to a major stream of offerings currently. These offerings are driven by the strong demand for pork, the desire to reduce pork imports, and the likelihood of a strong return on investment in pig production.

The cost of commercial feed in China is currently 2.7 CNY/kg, which means the cost to finish a pig is about 675 CNY, or roughly $104 (US$). Non-feed costs (buildings, labor, etc.) are currently only 60 CNY/pig, or $9.25/pig.

Strong market prices for over a year have created good profits and a strong environment for investment in pig farming (see www.soozhu.com for current hog price charts). There are now over 100 farms in China with more than 10,000 sows, with several farms heading toward mega-farm status.

Figure 1 lists some of the major farm groups and locations, including estimates of their growth in the last 3-4 years. It is interesting to note that diverse sources of funding have been available for expansion, perhaps reminiscent of the growth seen in the U.S. swine industry in the ’90s, when investment banks, public share offerings, private company investors and family-based investments were common.

In China, Wens Family Farms have largely expanded through internal sources, while Muyuan farms are heading for a major public offering (IPO) in 2011, and the Zhengbang group has a strong range of private investors.

Most of the farms in Figure 1 are planning much larger expansions over the next five years. In our conversations and visits with staffs at these farms, several have indicated they are aiming for sow numbers above 100,000.

In some cases, the ongoing expansion has necessitated a move away from major urban markets, such as Beijing, Shanghai and Guangdong, and into the more rural provinces, such as Henan and Sichuan. This trend to expand in central and southern rural provinces has the strong support of Chinese authorities because it helps stabilize the pork supply and addresses land usage and rural employment concerns.

For example, the Muyuan farm group has gathered major support for hog farm expansions in the rural central province of Henan.

The Shuanghui group, also based in Henan, has previously focused on slaughterhouse operations, with a huge range of input farms producing about 25% (approximately 10 million pigs) of the annual carcass output in the province. However, it is now moving to more integrated farm operations with more self-owned farms to improve the consistency of slaughter supply as well as food safety.

The New Hope and Wens farm groups operate a two-site system wherein several large breeding stock sites are linked to several thousand small finisher units (i.e., 500 pigs). This approach has the strong advantage of supporting rural family employment.

Nearly all of the farm expansions have utilized genetically lean pigs of Western origin, such as Large Whites and Durocs. It is interesting to note this historical reverse-flow of pigs, as the Large White breed primarily originated from pigs imported from China in the 1880s.

The remaining native, fatty pork market should not be underestimated, however. Xiang roaster pigs, Jinhua hams and fatty pork cuts retain a notable presence in stores and restaurants throughout China. Over three million hams derived from Jinhua pigs are sold annually.

Pork Preferred

Chinese pig production is expanding rapidly, with clear investment opportunities for continued growth. Pig farming must retain its activity and prosperity in China to provide food security for the expanding urban populations’ preference for pork. Clearly, those leading the expansions should examine and learn from the rapid expansion of U.S. hog farms in the 1990s.

Steven McOrist, University of Nottingham, is based in the United Kingdom and Ningbo, China; Michael Boddington, Boddington Consulting (www.boddingtonconsulting.com[4]), works with Asian Agribusiness Consulting, Beijing, China.